Housing Cooperative Basics

A Housing Cooperative is a non-profit corporation that owns property occupied by the owners of that corporation. It is formed when people join with each other on a democratic basis to own or control the housing in which they live. Each month residents pay an amount that covers their share of the operating expenses to the corporation.

A Co-op can be comprised of almost any type of housing, including high-rise apartment buildings, garden-style apartments, townhouses or single-family homes. As owners, cooperative members have an exclusive right to live in a specific unit. This residency is established through an occupancy agreement or proprietary lease. In most cases, members can occupy the apartment for as long as they want. Members also have a vote in the affairs of the corporation.

Before a person can join a cooperative as a member they are usually expected to buy a share of the cooperative. The purchase price of the membership share will vary depending on the neighborhood, the size of the unit, whether the co-op limits resale prices, and whether the co-op has an underlying mortgage for the entire property. Note, organizing members of a new cooperative will usually have access to much lower "insider" prices and more favorable terms.

Housing Cooperative operations are usually governed by two documents: Articles of Incorporation - a short document , typically two or three pages, that registers the cooperative with the government, and gives it some special protection and additional responsibilities under the law; and Bylaws -a longer document, typically 30 pages or more, that details the rules for operating the cooperative. Cooperative will usually also have their members sign a third document, called an Occupancy Agreement. Occupancy Agreements are usually very detailed, and describe specific cooperative rules on things like noise and pets.

Market-Rate Housing Cooperatives

In a market-rate cooperative members can buy or sell a membership or shares at whatever price the market will bear. Purchase prices and equity accumulation are very similar to condominium or single-family ownership.

Limited-Equity Housing Cooperatives

In a limited-equity housing cooperative there are restrictions on what outgoing members can get from sale of their shares. These are usually imposed because the co-op's members benefit from below-market interest rate mortgage loans, grants, real estate tax abatement, or other features that make the housing more affordable. Limited equity cooperatives sometimes also have maximum income limits for new members. These restrictions can usually found in the cooperative's bylaws or lending agreements.

Unit Modifications

Most cooperatives restrict anything beyond the most basic alterations to apartments by members. The main reason is a desire to protect the value of the building as a cooperative. Sometimes, however, the Board of Directors will allow members to make alterations to individual apartments on a case by case basis.

Leasing Cooperatives (or zero-equity)

In a leasing cooperative, the cooperative leases the property from an outside investor (often a nonprofit corporation that is set up specifically for this purpose). Since the cooperative corporation does not own any real estate, the cooperative is not in a position to accumulate equity (just as a renter doesn't build any equity). However, the cooperative is often in a position to buy the property if it comes up for sale later and convert to a market rate or limited-equity cooperative. Some leasing cooperatives allow outgoing members to take with them at least part of their share of the cash reserves built up by the cooperative while they were in occupancy.

All co-ops charge residents a monthly carrying charge (also called a monthly maintenance fee). The amount of the monthly charge varies from co-op to co-op. The charges cover the members’ proportionate share of operating and maintenance. This often includes the blanket mortgage property taxes, management fees, maintenance costs, insurance premiums, utilities, and contributions to reserve funds. Carrying charges must be raised every year to keep up with the constantly rising cost of utilities, supplies and services. Taxes are assessed on the cooperative as owner of the property. Even though members don't pay real estate taxes directly, federal tax law allows them to deduct their share of the co-op tax payments, as well as their mortgage interest payments, on their personal income tax returns.

Because cooperatives are communities of people who share a financial obligation and responsibility for governing how they want to live together, it is important for co-ops to be careful about admitting new members. They must ensure that incoming members can meet their financial obligation and will abide by the rules of the community. The process for making those decisions will often include a written application, a credit and background check, and usually an in-person interview. Like any other form of housing, cooperatives may not discriminate based on the protected classes listed in the Fair Housing Act. Those classes include race, color, religion, sex, familial status, national origin, or disability.